Economic storm and political situation

Fernando Fernández. Professor. IE Business School

10 February 2011

After losing almost three years, Zapatero has finally accepted that Spain is in the grip of a serious crisis. The problem now is that he lacks the credibility and legitimacy to tackle it.

Rodríguez Zapatero has tried to reinvent himself with the presentation of the President of the Government´s 2010 Economic Report. Protected by his key people and the odd international observer, with a staging typical of a country in bankruptcy, the president gave the speech he should have given in 2008. Greeted by some as the reformist sacrifice of a true man of state and by others as an admission of failure that has led to the intervention of the Spanish economy, it is true that Zapatero, left with no choice, has forsworn his economic policy. He has admitted that the crisis will be long and that employment levels will not recover until 2015. He realizes that the Spanish financial system needs to be recapitalized to ensure credit flows, that the labor reform has been very low-key and has no effect on the collective bargaining process, and that the State of the Autonomous Communities has gone too far and creates problems that affect solvency and competitiveness. Obvious remarks that, only a few months ago, the Socialist leader were the work of anti-patriots and reactionaries.

The new Zapatero, who seeks to recover his international reputation and his electoral return, has three fundamental problems: credibility, opportunity and legitimacy. Credibility because one cannot say one thing and then the opposite with the same conviction. He who said one day that words were there to serve politics thinks he has the right to try, but the general reception has been tinged with scepticism and mistrust. Opportunity because the reforms that have been announced are necessary and could address the torment of unemployment, recession and liquidity restrictions. However, it is not clear that they are more likely designed to avoid the humiliation of a Spanish economy in bankruptcy. Things have gone too far. The immediate future depends more on the response from the EU authorities (increased rescue fund, authorisation to buy sovereign debts, support from the European Central Bank and the transfer of fiscal sovereignty) than on the Spanish government itself. Things can always go wrong and the president is an expert at that, but now they cannot be corrected without outside help. One good example is the recapitalisation of the savings banks. It could have been carried out easily with private funds in 2008 or with public funds in 2009, like the countries that temporarily nationalised their financial systems at the time, but it seems that it will not be easy to do in 2011 without international help.

The third problem is legitimacy. Rodríguez Zapatero has decided to end his term of office as a man of state. If he were a true man of state, he would call elections and seek a democratic mandate to legitimise the tough adjustments he is imposing on us. The reforms that have been proposed need social support that can only come from an electoral mandate. Anything else means having someone in charge who is using the government´s weakness to their own advantage, and an executive cornered by minority interests exploiting the electoral arithmetic of a government that is on its way out. There is a theory that in political economics true reforms are only made at the beginning of a term of office. What Zapatero is trying to do now is not to sacrifice himself, but rather to take the country down his sacramental road with him. It doesn’t have to be like this: he could apply for a warehouse lending facility from the IMF to temporarily guarantee finance and the Spanish people could then decide who is to get them out of this hole and how.

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